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Recently, the Income Tax Department has issued an advisory for salaried taxpayers to report correct income while filing the returns. Due to this, a cautionary penalty for under reporting or misreporting of income u/s, 270A came to light. Further, the department has also made major changes in the ITR Form 1 (Sahaj) for F.Y 17-18 in regard to the income details. Now, a complete breakup of your salary and house property income would be mentioned in the ITR instead of the total figure. Both these moves clearly reflect the intention of the department to end the malpractices performed by the taxpayers in order to evade tax.
Therefore, it has become very important for you to know about the penalty u/s 270A of the Act. If a person under-reports his income or inflates his deduction while filing the ITR, then a penalty shall be imposed on such person u/s 270A of the Income Tax Act.
Let's understand what exactly Sec 270A states, what is the meaning of the terms used in this section, and how much amount is to be paid as a penalty?
Section 270A of the Income Tax Act states that an assessing officer (AO), a commissioner (appeals), a principal commissioner, or a commissioner may direct a person to pay a penalty if he under-reports or misreports his income. The penalty may range from 50% to 200%. This section was introduced in Budget 2016 and became effective from F.Y 16-17.
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Under-reporting of income will depend on the facts of each case. Under-reporting of income takes place when a person discloses a smaller amount than their actual income. Therefore, there can be various circumstances wherein under-reporting can occur, and we have enumerated some of them below :
As per the Income Tax Act, the term misreporting of income would include the circumstances given below -
If income is under-reported due to misreporting of income, then penalty shall be levied at 200% of tax payable on such under-reported income. However, if income is under-reported due to any other circumstances, then the penalty shall be 50% of the tax payable on under-reported income.
Note: The penalty under section 270A is in addition to the tax due on underreported or misreported income.
Example – If your income is, say, Rs. 20,00,000, and you have not reported an income of Rs 4,00,000 while filing your ITR. Then, AO can impose a penalty u/s 270A of about Rs 60,000 (50% of the tax on under-reported income, i.e., Rs 1,20,000 (400000*30%)). However, If the underreporting is due to misreporting of income, then the penalty can be up to 200% of the tax on unreported income. That means 200% of Rs. 1,20,000 (400000*30%) amounting to Rs. 2,40,000.
While filing your returns, you must disclose all your incomes under the respective heads in order to avoid penalty u/s 270A. This penalty is levied upon you for underreporting or misreporting of your income. Remember, the penalty is to be paid over and above the taxes. Therefore, file an accurate and well-timed return and become a tax-compliant citizen. Book an Online CA Now!
When an individual declares less income on their tax return than they earned, it's termed as under-reporting income. If someone furnishes incorrect or misleading details regarding income on their tax return, it's termed misreporting income.
Under Section 270A, both underreporting and misreporting of income carry penalties. Underreporting incurs a penalty equal to half of the tax on the unreported income while misreporting results in a penalty of 200% of the tax reported on the misrepresented income.
If tax authorities uncover undisclosed income, a penalty of 30% of that income will be levied. To avoid further consequences, the taxpayer must confess to the undisclosed income, disclose its source, and settle the owed taxes along with interest by the specified due date.
Both individuals and public companies can engage in underreporting. Deliberate underreporting can lead to financial penalties, criminal charges, or both for the offenders.
